Natural gas broke out above $4.00 in decisive fashion as the trade seemed to embrace the fact that Goldman Sachs has upped their natural gas forecast getting more in line with my forecast and catching up with the bottom that I called in January. The natural gas market seemed to rally after the Goldman seal of approval, yet readers of The Energy Report should have been expecting this breakout all along. We’re glad Goldman is catching up with my earlier call.
As reported by Reuters News, “Goldman Sachs has raised its 2013 U.S. natural gas price forecast by 17%, citing cold weather in March and a tightening market.” It seems Goldman realizes that, “demand growth against stable production has lowered U.S. inventories to 1.7 trillion cubic feet (Tcf) at the end of March from 2.5 Tcf last year. So it raised its Nymex natural gas price forecast to $4.40 per million British thermal units (mmBtu) for the balance of 2013 from $3.75 per mmBtu.”
While some may have been waiting for an excuse or intervention from Goldman Sachs to drive this market higher, the truth is the fundamentals for this market are getting more bullish each day and it is getting harder for the former bears to ignore it. Natural gas inventories fell below the five-year average for the first time in 19 months. We had hot weather in Texas and below normal temperatures in the Midwest and Northeast. Falling natural gas rig counts, near record demand and sharply rising demand expectations all are conspiring to put in a solid low.
On Friday producers seemed to be saying quite clearly that we need a higher price for natural gas to keep up with rising demand. The Baker Hughes Natural Gas rig count fell to a 14-year low as producers seem to be demanding higher prices. That is especially true in the back end of the curve as it is being projected that next winter’s supply of gas will be at the lowest level since 2008. To avoid shortages prices must rise to make sure that demand is met.
Demand expectations are rising because, as Bloomberg News reported, power producers including Duke Energy Corp., NRG Energy Corp., Southern Co. and Dynegy Inc. say they plan to run their gas-fired units this year at close to the top rates of 2012 as the EPA puts pressure on coal.
As I wrote in mid-March, “In what could be the best long term play in all of the commodities markets, the natural gas may be on track to create a major bottom. The reason is that because of the shale gas revolution and the low price of natural gas, demand is being created. Low prices at some point always cure low prices and with the abundance of natural gas, it's cleaner burning properties means natural gas’ time is here.”
As reported by Bloomberg News on Feb. 22, “Gas for delivery in three years may rise to between $5 and $8 per million British thermal units should LNG terminals from Texas to Oregon start moving cargoes, according to estimates from BNP Paribas, Price Futures Group and Barclays Plc. That’s at least 14% higher than where markets are pricing 2016 gas today, based on Bloomberg Commodity Fair Values. As much as 10% of U.S. output is likely to be earmarked for export as LNG by 2016, according to Goldman Sachs Group Inc. estimates.”
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.